I’m Pre-Qualified, but am I prepared?
One thing we enjoy at our office is getting to know our customers. We have a unique opportunity at our office to assist in many different areas of insurance and financial services. Most know our company for their historic success in home and auto insurance; however, there is a lot more that we assist with. One in particular is helping clients reach their financial goals or dreams.
I want to discuss a common financial goal that I come across and that is purchasing your first house or car. Who doesn’t get excited about that? And you should. It is exciting, but it is also a big commitment.
Who remembers buying their first house? How about your first car? If you can think back to that time, I would imagine you were quite excited about your new purchase. The freedom and feeling of having the road at your fingertips or the fact that you were moving out of momma’s house and couldn’t wait to have your friends over for a cookout in your new home! Maybe that last one was me. Both of these events can be quite exciting and memorable in our lives.
Loan interest rates remain very affordable and as weather warms up, I expect us to only have more people shopping or considering that next vehicle or house. As a financial coach or strategic thinking partner, it is my mission to help these people reach their goals, but also help them understand the commitments they will be tackling. Too many times, I feel like people make a financial obligation without sometimes knowing fully how that will impact their budget and their future goals. Consumers need to understand that pre-qualification is not the amount of money that you need to spend on your next car/house, it is the amount that you are able to spend.
Let’s look at an example to better understand. We will use a home purchase as an example since it has a few more moving parts. The situation: you and your spouse decide it is time to get out of the apartment and buy a house, so you go down to your local banker or search online to get pre-qualified. You find out you are pre-qualified for up to $200,000. Booom!!! Victory!! You both celebrate, having no idea you would be able to buy such a house. You and your spouse spend your evenings cruising the internet and looking at listings and your weekends driving by them. You find one in particular that you both like, its listed right at the amount you pre-qualified for, but you think it is perfect! Next thing you know, you have had an offer accepted and are well on your way to owning that beautiful new home!
I realize that these purchases are exciting. However, I encourage you to put some planning into your strategy or at least pump the brakes before you jump into something you may regret. There is a lot that goes in to home ownership. Here are a few things that you may need to consider when purchasing that next home:
- How much do I have for unexpected repairs?
- Do I have a 3-6 month emergency fund to take care of these?
- New house need a few improvements?
- How much cash savings do you have ready for this?
- Will I have to pay Private Mortgage Insurance (PMI)?
- If so, what is that, how much does that cost, and for how long will I have to pay it?
- What is the combined monthly payment?
- Did you consider homeowner’s insurance, taxes, HOA fees, flood insurance, etc?
- What will utilities cost me?
- In relation to my total monthly payment, will it allow me to continue to invest in my financial security and future?
- Can I afford the right amount of life insurance?
- Can I still save for retirement, vacations, etc.?
- How much do I need to put down?
- How much are closing costs going to cost me?
These are just a few of the questions that may be a concern for you now or in the future that could weight on what is the correct amount to spend on that next house.
Many times in appointments, people have told me how important is to them to also save for retirement, have college savings set aside for the kids, have money to go on vacations, be able to have life insurance protection for their family. That’s all fine and good, but next thing you know the brand-new car/truck or fancy house was more important and now they don’t have the money to save for the future or protect the present or their family. I encourage that not to become you. Taking a few minutes to make a sound plan for the future is well worth the time.
Making that plan is much easier before you start the shopping experience. I don’t know about you, but leather seats, navigation on the dash, granite countertops, and a swimming pool sound pretty exciting. It’ll be much more difficult to make the wiser decision if you didn’t go into this with a game plan.
We have seen success and peace of mind for those who slow down on these big decisions. Do you and your loved ones a favor and communicate with your family and your financial coach, and make a decision that is right for you and your family, especially if that is a 30-year commitment you are about to make.
Hired to sell, but also love to help! Give us a call if we can do just that!